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Courier Backdated voluntary VAT registration + FRS

How to keep records in circumstances described

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Hi Everyone,

I am a courier (self employed sole trader providing services for one company) and currently use cash basis for my records. Most of my expenses are mileage (I use AMAP rates).

I have decided to register voluntarily for VAT + FRS (10%) and backdate it to March 2019. My turnover is and will remain below the threshold. The company I provide services for are happy to pay me VAT for all the time since.

I read a lot about this (official gov uk materials + this website + google). There are a few bits that are still not clear to me.

1) 1% discount for the first year of registration - if I backdated my registration does it mean I am ineligible? Or do I apply it to my turnover between March 2019 and March 2020? Or 1 year from now? I am confused

2) I want to continue the "cash basis like method" obviously now I'll receive a lump sum from the company (2.5 years of VAT) of which I pay back some under FRS and keep some. Does it count as this year's turnover for my self assessment? Is VAT paid by the company my turnover and VAT paid back as FRS my expense? That means I may end up paying more income tax as in 2019-2020 my earnings were below the tax free allowance but I have completed my past tax returns so if I receive a lump sum of backdated VAT now that counts as this year's turnover is it right?

3) my colleagues told me VAT is really simple just do quarterly retuns type in payments from company (VAT inclusive) and take 10% off it to pay back, all done. Yeah easy but I've read that I need to maintain complete records in a so called VAT account and from next year it has to be MTD compatible. I am unsure how my records should look like and how can I prove I am not a limited costs trader when using AMAP for motoring costs (motoring costs are valid for me as I work in transport). Do I need to record every single mileage entry (one a day) in there? Expenses that are not VAT (there is another courier working for me not VAT registered he issues me invoices every month and I pay him cash, this is my expense)? I am confused cause FRS is meant to be simple but I guess I need to somehow prove I am not a limited cost trader in my records? I use Excel spreadsheet at the moment and will be using it for this VAT account too just not sure what to include on there. I'd rather be ready for MTD when they make it compulsory next year.

4) The mysterious text that "FRS has its own cash accounting method" I couldn't find anything about it - is it different to the cash basis I use for my self assessment records?

As you can see I got a bit tangled in different schemes that I hope can be combined. FRS - cash basis method - AMAP mileage rates - not a limited costs trader - backdated registration - 1% discount? - implications for income tax - records keeping

Thank you in advance for any advice

Replies (8)

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By lesley.barnes
22nd Sep 2021 09:49

If you don't have many expenses other than mileage are you sure that your flat rate at 10% is correct. Have a look at limited cost businesses and see if this applies to you.

www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-s...

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Replying to lesley.barnes:
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By lesley.barnes
22nd Sep 2021 10:26

I was editing this to say that you don't explain why you are claiming mileage rather than the full cost of operating and running the van. I agree that couriers are exempt from the limited cost system but even if it applies is this the best VAT scheme for you? Are you claiming everything you should for VAT puposes? You need to look at whether the person who is working for you is an employee rather than self employed are you an employee? There are a lot of issues here other than VAT, that need working through with an accountant. Once they are all untangled the VAT issue will be clearer.

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By David Ex
22nd Sep 2021 10:03

J1643 wrote:

I am a courier (self employed sole trader providing services for one company)

I think you’re an employee of that company. But that’s another issue.

J1643 wrote:

my colleagues told me VAT is really simple

That suggests they don’t know much about VAT so I’d be wary about taking advice from them.

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By Wanderer
22nd Sep 2021 10:03

You've likely just caused yourself a whole lot of pain for no gain. In fact the route you've gone is likely to cost you more than any benefit you will derive.

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Jason Croke
By Jason Croke
22nd Sep 2021 11:29

10% FRS means you are using the "transport" sector and relevant goods would include fuel and on that basis, you are not a limited cost trader and can use the 10%. You record all your purchases as normal and if your purchases are under the 2% rule (which they should be if your only costs are fuel), then that is sufficient evidence.

From April 2022 all VAT registered trades must comply with Making Tax Digital (MTD) which essentially means having digital accounting records, an Excel spreadsheet is sufficient to record the data but you will need a specially adapted spreadsheet (API bridge enabled) which will allow the spreadsheet to upload VAT return data to HMRC directly, you will no longer be able log onto the HMRC portal and type in the values into the VAT return on screen. There are still some free API spreadsheets out there, but MTD is not just about uploading the data to HMRC, it is also about the data you record in your spreadsheet being compliant.

You should seek the advice of a decent book-keeper, to help get you setup and running at least - you'll be making a load of free cash from what you are doing (registering for VAT/FRS) so don't do it yourself because being VAT registered comes with responsibilities which if not met, can lead to penalties and if you are already struggling with the basics, then it means you are likely to get things wrong going forwards. HMRC will inspect your first VAT return, so it needs to be spot on.

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By Paul Crowley
22nd Sep 2021 13:45

If only there was an accountant that could look at all the relevant issues
FRS sounds daft to me but the second driver might change that thought

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By J1643
22nd Sep 2021 21:10

Thank you for all the replies. I’ll try my best to make some things clearer.

I am not an employee. I am self employed and I am paid by the company to provide services. I am paid per parcel and I can set my own working hours. I also have a right to use a substitute to provide services on my behalf and paying the substitute is my responsibility. I think it’s clear I am not an employee. The other courier (who works as my substitute) is self wmployed (no vat) and provides services for me and for yet another courier company.

The reason why I chose AMAP mileage as opposed to actual running costs is that I use my car for both personal use and work and this is the simplest way to record it. Otherwise I would need to ask myself questions like “how much of my last fuel tank was used for work and how much for personal journeys”, too complicated. Additionally my actual running costs are less than 45p / mile therefore I am better off using the scheme (I do less than 10k miles a year).

Is FRS good for me? Would standard VAT be better? It probably would. I knew I would be better off being VAT registered than not but it was so complicated that I decided to give up and earn less (not claim back vat on fuel etc) and not registered earlier cause it’s too much hassle. That was pre-covid and the potential gain was low (some years I had no income tax to pay or pennies my income was not worth it). Now that I earn more money it makes more sense but it’s still a lot of work to maintain all records (for standard VAT). I found the FRS a happy medium between an easy peasy no vat registration at all (up until now) and very complicated standard vat I wouldn’t have time for all the extra accounting involved. I am not considering standard VAT even if I was better off than on FRS. FRS is simpler and I know I can handle it once I unserstand the bits that are unclear at the moment and I’ll be better off than I was before VAT registration

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By J1643
27th Sep 2021 11:24

I found answers to most of my questions, what I still don’t know is whether I can apply the 1% discount or not?

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